What's the Big Deal About Natural Gas, Anyway?

If you're a regular to The Motley Fool, you've probably been reading about the promise of natural gas for a couple years now. If digesting all that information is easy, this article isn't for you.

Instead, I hope to take what can be a bewildering topic and make it a little more digestible for the beginning investor.

Let's start at the beginningWe use energy every day. From heating up our coffee, to firing up our computer, and turning on the A/C on our drive to work, we have become reliant on cheap energy. For most of the 100-plus years since the Industrial Revolution, it's been pretty easy to extract the materials -- namely coal and oil -- that we need to continue living the way we do.

But like all nonrenewable commodities, the day will eventually come when oil and coal become increasingly scarce. As things stand today, here's how we generate our energy in America.

Source: Energy Information Administration, numbers for 2010.

As you can see, oil, natural gas, and coal account for 83% of our energy consumed. Most people have no problem figuring out where all the oil gets used, but they might get confused when it comes to the other two. Coal is used primarily for the generation of electricity, and also in the production of certain metals. Natural gas, on the other hand, has historically been a source of energy for utilities (cooking, heat, etc.) in residential and commercial properties.

Oil and coal have not been media darlings lately. You hear politicians talking all the time about weaning the country from foreign oil -- especially from the Middle East. And coal gets a bad rap for being dirty.

But those things didn't seem to bother anyone too much until the last decade. Wars in Iraq and Afghanistan didn't help, and concerns about global warming probably played a role, too. But natural gas' rise has less to do with the fall of oil and coal, and more to do with a process that's been refined and exploited over the past decade: fracking.

What the frack?!Imagine that deep down in the Earth's crust, there's a pocket of natural gas that we could use, but just can't get to. Over the last 10 years, energy companies have solved the riddle and figured out how to reach that gas. The process involves drilling ultra-deep holes in the Earth's crust, shooting a liquid mix into rock formations at super-high speeds. This essentially "pops" the bubble holding the natural gas in, and it is collected as it exits the earth.

If the process worked as easy as it sounds, that'd be great. But many contend that fracking can contaminate water sources and even cause earthquakes. The debate over the safety of fracking is important, but that's beyond what this article is about. You can read more about the debate here.

What are we waiting for?From an economic standpoint, the important thing to know about fracking is that it has led to an overabundance of natural gas -- pushing prices down to record lows. While ExxonMobil and Chesapeake Energy (NYS: CHK) -- the nation's leading natural gas producers -- may not like that trend, it's a boon for consumers.

The No. 1 thing holding us back from using natural gas to power our cars and trucks is a lack of infrastructure. Westport Innovations (NAS: WPRT) has already designed engines that can run on natural gas, but the problem is a lack of places to fill up.

Any small American town is likely to have more than one gas station, but it would cost billions of dollars to set up the same network of filling stations for natural gas. Clean Energy Fuels (NAS: CLNE) is doing what it can, building out filling stations for long-haul truckers, but there's still a long way to go before natural gas can start replacing oil for our transportation needs.

Is this sustainable?It's estimated that there's enough natural gas under American soil alone to power the country for the next 100 years. Though that's certainly encouraging, it is by no means a renewable energy source. Just like oil and coal, the day will eventually come when natural gas becomes scarcer.

Because geologists are pretty sure that day is pretty far off, natural gas has been increasingly viewed as a "gap resource." Over the next 100 years -- the narrative goes -- natural gas will buy our scientists time to develop the type of renewable energy that companies such as Solazyme (NAS: SZYM) and Amyris (NAS: AMRS) are busy researching right now.

Without a doubt, this article just scratches the surface of natural gas' story in America. If you'd like a primer on how to profit from the energy sector no matter what fuel will drive our future, I suggest you check out our special free report: "The Only Energy Stock You'll Ever Need." The company involved has roots in both the oil and natural gas industries. Get your copy of the report today, absolutely free.